Last Updated on December 8, 2024

Welcome to your one-stop shop for everything you need to know about Keren Hishtalmut.

Keren Hishtalmut (KH) is a great tax-free investment account, available to many employees (at the employer’s discretion) and to all self-employed individuals. Contribute the maximum you can to it (though read on for self-employed US citizens). Optimize your fees, think carefully about your investment track, and consider leaving the money in the fund beyond the 6-year lock-up period.

Click here if you’re looking for personal support with Keren Hishtalmut, Pension accounts, financial planning, or investments.

History

Keren Hishtalmut translates roughly to “Study Fund”. But, a KH has little to do with studying today. It is referred to as a study fund because historically it was used to save money towards professional development opportunities such as further training and conferences. Today it can be used for any purpose (though see the section on teachers below).

Keren Hishtalmut for employees

The basics

The employee contributes a portion of their salary to the KH investment fund, and the employer provides a 3x match. In almost all cases, the employee contributes 2.5% of the gross (bruto) salary and the employer adds 7.5%, for a total of 10%.

Income tax is payable on the amount the employee contributes, but no income tax is paid on the employer’s portion, up to a salary of 15,712 ₪ (as of 2024).

For example, an employee earning 10,000 ₪ will contribute 250 ₪ per month and their employer will add 750 ₪ per month, for a total of 1000 ₪.

The money is invested for you (you can choose your investment track) and you access it after 6 years. If you leave the money in the fund beyond 6 years, the existing sums and new deposits will continue to grow tax free and are fully liquid.

How do I get a Keren Hishtalmut?

If you are an employee, your employer decides whether to contribute to a KH. You cannot open one yourself. However there are several industries where all employees receive a KH including cleaning/maintenance, security, teaching, and construction.

Many other industries unfortunately do not offer KH, while others will offer it based on seniority or other criteria. It is always worth asking for one and determining whether it is something you can include in your negotiations at your next salary discussion.

According the 2022 Viola Welfare and Benefits survey, 88% of hi-tech companies provide a KH to their employees.

Should I ask for a Keren Hishtalmut instead of a raise?

First, let’s understand the pros and cons of each.

When you receive a raise, you take more money home each month (your net income rises) and your pension payments also rise as the salary base on which they are paid increased.

On the other hand, a KH gives you another 7.5% of your salary, tax free. Along with this, your take-home salary goes down slightly as 2.5% begins being deposited into the KH.

Because of this trade off, sometimes a raise is better, sometimes a KH is better, depending on the size of the raise. How can you know what is right for you? I created a free calculator!

Start from the first sheet named “Instructions”.

Should I expect to be paid Keren Hishtalmut above the tax cap?

The government only provides the KH tax benefits (no income tax on employer contribution and no capital gains tax to pay on profits) up to a salary of 15,712 ₪ (in 2024).

Most companies that pay KH, only pay up to the tax cap. This provides up to a 1,571 ₪ deposit per month into the investment fund.

Some industries may pay KH above the cap, though this is rare. Viola’s 2022 Annual Welfare and Benefits Survey shows that 77% of hitech companies pay up to the cap, and only 16% pay KH on the full salary for all employees.

Should I ask for extra salary instead of Keren Hishtalmut above the cap?

Let’s assume you are earning a salary of 30,000 ₪ and receiving KH on the whole amount. 3000 ₪ is deposited into your fund every month, but only 1,571 ₪ is tax free. You are paying income tax on 1,429 ₪. The tax is coming from your net pay, but the deposit is going into your KH which is locked up for 6 years.

This gives you a taste of the “first world problems” involved in receiving KH above the cap, but there are more. Let’s summarize them:

1. As mentioned above, paying tax from your income on a deposit which is locked away
2. High KH fees (often 0.8%) without the capital-gains tax benefits
3. The deposits are not liquid for 6 years, which is disappointing given you paid tax on them
4. Once the fund becomes liquid, if you pull any of the money out (even just the funds from deposits above the tax cap), the fund becomes closed to new deposits. New deposits will have to go into a new fund that is then closed for 6 years. This places a significant limitation on your access to your funds.

On the other hand, there are some minor advantages such as tax deferral, providing the option to switch funds without paying tax.

Some employers allow you to receive the KH sum above the cap as salary, rather than as KH deposit. You will then receive the deposit, after tax, to your bank account. If you are provided with this option AND you are confident that you will invest the money and not waste it, it’s probably worth asking for the KH above the cap as salary.

Does being a US citizen prohibit me from accepting an employee Keren Hishtalmut?

Many US accountants in Israel do not believe that this is a problem for US citizens. Often, US accountants find an employer funded KH to be similar to an employer funded pension in that it avoids the PFIC reporting requirements. 

Take note that even if employer contributions are considered income tax free in Israel, these contributions are likely still considered taxable income on your US tax return and may need to be reported each year. Speak to your US accountant to confirm all of this.

Note that it is often possible to avoid paying US taxes on your Keren Hishtalmut by declaring employee and employer contributions each year and then using accrued excess foreign tax credits to offset the gains upon sale. Your US accountant should be able to assist.

What happens when I change jobs?

When you change jobs you can:

1. Continue depositing to the same fund manager as before.
2. Move the balance to a new fund manager and direct your new deposits there
3. Leave the balance where it is and choose to direct new deposits to a new fund manager

Options 1 and 2 are both reasonable directions to take. In both cases, a new account will generally be opened, kicking off a new 6-year lockup period for the new deposits. (The existing balance from the previous employer will retain the original liquidity date in all scenarios.)

The good news is that once the older fund becomes liquid (after 6 years), it can be used to also withdraw from the newer fund. See “Can I withdraw my money before 6 years is up?” below.

Coming back to the options above, Option 3 is not usually advised. Having your funds spread across different companies:

• Introduces complexity
• Increases the chance of forgetting about old funds
• Makes it difficult to keep track of your overall assets as part of regular financial planning
• Increases the chance of old, inactive funds reverting to high fees or being invested in inappropriate tracks

Managing a Keren Hishtalmut fund

This section applies to both employees and the self-employed.

How can I open a new Keren Hishtalmut?

You can open a Keren Hishtalmut with any of the investment houses in Israel. You can either call them up directly to receive quotes on fees, or you can speak to a licensed pension agent who will manage the process for you.

The most popular investment houses include:

• Altshuler Shacham
• Analyst
• Clal
• HaPhoenix
• Harel
• Meitav Dash
• Menora
• Migdal
• More
• Yalin Lapidot

Should I open the fund myself or use a pension/insurance agent?

There are two important questions here:

1. Where should you receive your advice from?
2. Who should open and manage the fund for you?

With regards to the first question, there are many great pension agents out there. But it’s important to understand how they’re compensated and where their financial interests lie. (See the next section.) I believe it is worth periodically consulting with somebody independent who you trust. This can be an independent and licensed pension advisor who doesn’t take commissions. Or somebody else independent who can teach you the fundamentals you need in order to make smart decisions yourself.

One of the most important sessions I do with my clients is focused on pension and hishtalmut. I help them finally understand how their fund works, what to focus on, and how to optimize for fees and higher returns. Click here to book a session with me.

With regards to the second question, there are several advantages to using an agent:

• A good agent is accessible
• Several can answer your questions in English
• They have their finger on the pulse and get you quotes from multiple companies
• They can handle insurance claims (not relevant for Keren Hishtalmut) and help with loan requests
• They have buying power to negotiate lower fees

On the other hand, you will usually pay higher fees through an agent (0.7-0.8%) as compared to contacting 3 or 4 companies directly and negotiating a little.

How are pension agents compensated?

Pension agents make money by selling pension, hishtalmut, and other products. They act as the sales and marketing arms of the investment managers. They are paid:

1. An upfront fee for signing up a client up for a pension/keren hishtalmut account (עמלת היקף)
2. An ongoing fee every year (עמלת נפרעים)

Let’s take for example the investment manager, “More”. Agents pushed More hard in 2022 after More had a few years of good returns (note that is not necessarily a good reason to switch).

Why else did they encourage clients to switch to More? In the first 9 months of 2021, Moore collected 87M ₪ in fees and in that period paid agents an upfront fee of 56M ₪ and an ongoing fee of 34M ₪!

The upfront fee has increased in recent years to 5,000-8,000 ₪ per million transferred, while the ongoing fee has decreased. This incentivizes agents to encourage clients to change plans every few years:

If I want to use an agent, should I use the agent provided by my workplace, or a private agent?

When we examine the list of reasons above for using an agent, it becomes clear that there are significant advantages to using private agents.

Most importantly, they stick with you between jobs, they may be able to speak English, and once you create a relationship with them, they may go above and beyond to help with insurance claims.

How can I optimize my fund’s performance?

These are the two main things that matter.

Fees

You will be charged a percentage of your balance each year. This fee is called the Assets-Under-Management (AUM) Fee or דמי ניהול מחיסכון / מצבירה. This fee is negotiable.

There is also another “hidden” fee called the Investment Management Fee or דמי ניהול השקעות. This fee is not negotiable, but is generally lower for passive investment tracks such as the S&P 500.

Investment Track

You can choose where your money is invested. Well, kind of. These are the popular investment tracks you can choose from:

Track	Exposure to stocks	Approx. annual expected returns*	Volatility (largest historical crash)	Approx. balance after 40 years**
S&P 500	100%	10%	High (50%)	3.3M ₪
Stocks (מניות)	100%	9%	High (50%)	2.6M ₪
General (כללי)	50%	8%	Medium (25%)	2M ₪
Age dependent	20-50% dependent on age	6-8%	Low-Medium (17%-25%)	1.6M ₪

*Rough estimates based on 90 years of US data. Significant historical data in Israel is not readily available. Past performance are no guarantee of future results.
** In today’s currency (after accounting for inflation). Assuming max. deposits of 1,571 ₪ per month. After fees.

You can allocate part of your balance to one track and part to a different track.

What fee level should I aim for?

As of early 2024, the best fees in the market through agents range from 0.45-0.65%. You may be able to find lower fees directly through the investment houses.

These fees seem small but they significantly eat into your savings. A fee of 0.8% (which I commonly see), plus an Investment Management Fee of 0.1% will eat up over 20% of your final profits.

Interestingly, there is a point at which the cost of the fees outweighs the capital gains tax benefit inherent in a Keren Hishtalmut. Reuven Shirazi put together a calculator to determine this cut-off point under certain assumptions. Assuming 3% inflation and 9% returns, the following shows that with a fee of 0.8%+0.1%=0.9%, the cost of the fees will outweigh the capital gains tax benefit after only 25 years:

Which investment track should I choose?

This is a hard question to answer as it relates to your personal risk appetite, but here are some factors to consider:

• Time Horizon – If you plan to use the Keren Hishtalmut savings in the next 10 years, investing 100% in the stock market may be risky. Historically we’ve seen losses in the S&P 500 over this time period. On the other hand, if you plan to save for decades, you have the time to ride out any market crashes and you can afford to accept the interim ups and downs in exchange for higher return. There has never been a 15 year period in the last 90 years where the S&P 500 has gone down:

• Willingness – It’s easy to look in hindsight at stock market growth and choose the track that gives the highest expected return. But living through it is another matter altogether. Are you willing to stomach your portfolio dropping day after day, month after month, potentially for years, wiping out half of your hard-earning retirement savings? Are you confident that you won’t panic and sell? Will it cause you stress or prevent you from sleeping at night? These are important questions to ponder. Bonds generally reduce expected return, but they also reduce the depth of the interim crashes.
• Need – What goals are you trying to achieve? What kind of risk do you need to take to get there?

Do I have to pay taxes or fees if I switch to a different fund manager?

No. There are no taxes or penalties to pay when switching management companies.

However, agents do receive kickbacks for moving you to a new fund.

My fund is not performing well. Should I switch to a different fund manager?

Generally not.

If you are in the S&P 500 track, then there is little value of switching to a different fund manager.

If you are in an actively managed track, it is possible that another manager may be making smarter investment choices that will give a better return in the future. But the future is impossible to know and active managers rarely manage to maintain consistent outperformance.

As a result, most people who switch when their fund is not performing well get into a cycle of selling their fund when it is down (cheap) and buying another fund when it is up (expensive). This is the opposite of what we want to be doing in investing!

What should I do with the quarterly report?

It’s very important to open your quarterly report and check the following items:

1. Every quarter:
   • Deposits – Box “ה”. You want to verify that the sums deducted by your employer from your payslip (or, for Atzmaim, transferred from your bank account), actually reach your fund. Sometimes there are technical mistakes and the money isn’t credited to your correctly. And sometimes employers with cashflow issues will delay depositing money that is owed to you (this is illegal).
2. Once a year:
   • Fees – Box “ג”. Verify that your fees have not changed and that they are at an optimal level.
   • Investment track – Box “ד”. Verify that your investment track is still in line with your needs.

Finally, save your report. Chances are you’ll need it in the future.

Withdrawing money from Keren Hishtalmut

What happens after 6 years?

You can withdraw your money from the Keren Hishtalmut. There will be no tax to pay (as long as deposits weren’t made above the cap).

OR….

You can leave the money in the fund and keep depositing! New deposits remain liquid and can be withdrawn at any time.

This is extremely powerful. It means that in this situation you continue to receive all the tax benefits of new deposits into the Keren Hishtalmut, without the liquidity restrictions. For this reason, it is wise to try to plan to leave your Keren Hishtalmut intact for the long term.

After 6 years, can I withdraw only part of the balance?

Yes, you can withdraw part of balance. You can even choose whether to withdraw the exempt component or the taxable component (for example, if deposits were made above the tax cap).

However, once a withdrawal is made from the fund, the fund will become locked to new deposits. A new fund must be opened for new deposits, triggering a new 6-year waiting period for that new fund (and for those new deposits).

Some people choose to regularly open new funds and have a series of rolling release dates. There are different ways of achieving this depending on whether you’re an employee or self-employed, but it can get quite complex and is unnecessary if you are using your KH for long-term savings.

Can I withdraw my money before 6 years is up?

Yes, but most of the savings will be subject to a tax rate of 47%.

However, there are several exceptions:

• Funds on which tax has already been paid (deposits above the limit) can be withdrawn before 6 years without paying tax
• Up to one third of the funds can be withdrawn for certain educational purposes after 3 years
• At retirement age
• Piggybacking on an older, liquid fund (“החלת ותק”). If you have a fund that is 6 years’ old, you can also withdraw from a newer fund that is otherwise still locked up. When is this possible?
  • At least one of the funds must be an employee fund (if both are self-employed funds then this is not possible).
  • You must withdraw first from the newer fund
  • You must withdraw the whole sum from the newer fund
  • The older fund can’t have had a previous withdrawal or been used previously as a piggyback fund
  • There can’t have been simultaneous deposits to two funds (for example if you worked at two separate jobs at the same time)

The older fund locks to new deposits.

Can I take a loan and use my Keren Hishtalmut for collateral?

Yes. Most of the investment management companies offer this option.

What kind of terms might you expect? This is a typical example.

• 100,000 ₪ in the KH
• Maximum % of balance available as a loan (for stock track): 50% => 50,000 ₪ loan
• Interest rate: Prime minus 0.5% => 5.50% (example as of early 2024).
• Loan length: 5 years
• Monthly repayment: 952 ₪
• Total interest to pay: 7,118 ₪

Here is a very useful table of loan offers available, thanks to Tal Yablon:

What happens if I pass away?

The money cannot be transferred to a Keren Hishtalmut in the name of the beneficiaries, but rather must be withdrawn in order to transfer the money into the beneficiary’s name.

The tax exemptions will remain in place.

Using a Keren Hishtalmut for long-term investing

Should I leave my money in my Keren Hishtalmut after the 6-year lockup?

Yes! We’ve already answered this above, but it’s worth emphasizing again. Yes! This is the best investing vehicle in Israel and the tax benefits will significantly compound over time.

In the chart below you can see the impact of the tax benefit beyond the first 6 years. Assume 30 years of deposits up to the cap. In the first scenario you withdraw the KH balance every 6 years and invest it privately. In the second scenario you let the money grow in the KH. The tax benefit is worth 200-300K ₪!

Note that the chart doesn’t account for fees which do reduce the impact of the KH tax benefit. One way to reduce the impact of the listed and hidden fees is to move to a self-managed KH.

What about US citizens? Since KH is not recognized as a tax-advantaged vehicle in the US, US citizens would in theory have to pay tax to Uncle Sam upon withdrawing funds. This would reduce the overall tax benefit of the KH. However, if you are working with a good US accountant, US tax can be completely avoided in many cases (for example, if employee and employer contributions are declared each year and then excess foreign tax credits are used to offset the gains).

How much money can I expect to save if I don’t regularly withdraw?

The easiest way to become a millionaire is to simply not withdraw money from your KH.

At a 5% return after inflation, if you contribute up to the tax cap (15,712 ₪), you’ll have a quarter of a million in 10 years, half a million in 20 years and a million in 30 years. These amounts are in today’s money and represent what you could buy with the money today. The actual number listed in your account could be quite a bit higher.

Real Return/Years	10	20	30	40	50
2%	₪202,137	₪434,424	₪701,358	₪1,008,108	₪1,360,611
3%	₪212,542	₪481,972	₪823,514	₪1,256,470	₪1,805,307
4%	₪223,551	₪535,857	₪972,159	₪1,581,685	₪2,433,210
5%	₪235,196	₪596,969	₪1,153,437	₪2,009,381	₪3,325,971
6%	₪247,515	₪666,317	₪1,374,938	₪2,573,942	₪4,602,683
7%	₪260,546	₪745,053	₪1,646,037	₪3,321,493	₪6,437,148

Keren Hishtalmut for self-employed

How much can I contribute to my Keren Hishtalmut?

There is no technical limit on how much an Atzmai can deposit into KH. However due to the high fees, unless you have a self-managed fund, there isn’t a good reason to deposit above the cap for tax benefits.

There are two separate tax caps, for two different tax benefits:

1. A deposit of up to 4.5% of your income or 13,202 ₪ (the lower of the two) is tax-deductible and therefore reduces your income tax. For example, if you make 200,000 ₪ profit in a calendar year, a deposit of 9,000 ₪ can be used as a tax deduction.
2. Regardless of your salary, if you deposit 20,520 ₪ into your fund, all of the profits on this sum will be free of capital gains tax. That means that if/when you eventually withdraw funds from your KH, there will be no taxes to pay. To continue the previous example, if you make 200,000 ₪ profit and deposit 20,520 ₪ for the year, 9,000 ₪ of this can be used as a tax deduction against your income tax and the whole amount will grow in your fund, free of capital gains tax.

Can I open an Atzmai Keren Hishtalmut as a US taxpayer?

While a KH funded primarily by an employer is likely not a problem, a KH funded by someone who is self-employed likely would be. You should certainly consult with your US CPA before opening an Atzmai KH as they are likely considered PFICs.

One option is to open a self-managed KH and invest in US-domiciled funds that are not subject to PFIC restrictions. However, self-managed funds require minimums, so this is usually only possible if you have built up the minimum balance previously in an employee KH.

How much should I contribute to my Keren Hishtalmut?

If you can afford it, you should try to contribute the maximum 20,520 ₪ per year.

If your finances are tight, I would recommend the following contribution waterfall (order of deposits) for Atzmaim:

1. First, contribute the tax-deductible amount to your KH
2. Second, contribute the tax-deductible amount to your Pension
3. Third, contribute the difference between the tax-deductible amount and the maximum cap for capital gains tax benefit to your KH
4. Finally, deposit additional long-term savings into a private investment account.

The above recommendation may not apply to everyone (and certainly differs for US citizens). Furthermore, it only applies if you are paying income tax. If you are below the income tax threshold, you may want to max out your KH before contributing more than the minimum required amount to pension. When comparing KH to pension, KH has the advantage of becoming liquid after 6 years and you can withdraw the balance in the future without paying tax. Pension on the other hand is locked up until age 60 and distributions are often taxed.

How do I technically set up the contribution to my fund?

First you have to open a new Keren Hishtalmut for Atzmaim (“במעמד עצמאי”). See How can I open a new Keren Hishtalmut? above.

You can then either make a manual deposit(s) or contribute monthly:

• To make a manual deposit you need to complete a deposit form (these are now largely available in the investment managers’ online portals) and then initiate a bank transfer of the sum to the investment manager’s account.
• To make a regular monthly deposit, you will complete a direct debit form (your agent can prepare the form for you) and then set up a Harsha’a (הרשאה / direct debit access) in your bank account online portal.

Should I make one large deposit at the end of the year or contribute monthly?

Although there are advantages to contributing monthly to your pension fund, it doesn’t particularly make a difference whether you contribute to your KH monthly or annually.

As a general rule of thumb, if you have money sitting around, you may as well deposit into your KH at the beginning of the year so that you can benefit from the expected returns throughout the year. If on the other hand you are funding the KH from your monthly cashflow, then setting up an automated monthly deposit of 1/12 of your targeted annual deposit, can be a smart way to go.

If you decide to contribute monthly, but haven’t reached the tax cap by year end, you can always supplement your deposits with an additional manual contribution at year end.

What if I’m both an employee and self-employed? Can I still contribute?

Yes, you can contribute as an Atzmai, even if you are already receiving Keren Hishtalmut as an employee.

There is a separate cap for capital gains tax purposes for Atzmai and employee KH funds. This means that you can contribute up to 20,520 ₪ per year (2024) as an Atzmai, in addition to your employee/employer contributions, and still withdraw the profits in the future, free of capital gains tax.

With regards to tax-deductibility, the employee and Atzmai contributions are considering together. The more you receive into your KH as an employee, the less you can contribute for deductibility purposes as an Atzmai. You can use this calculator to determine the maximum Atzmai contribution that will be tax-deductible (scroll down to the KH section of the calculator).

Should I contribute above the cap to Keren Hishtalmut?

This is usually not advised as you will pay the high fees of KH without receiving the tax benefits. Instead, open a private investment account and invest there.

The possible exception is a self-managed KH. In a self-managed KH you can buy and sell stocks and funds without paying tax (tax deferral). For contributions above the cap, capital gains tax will only be paid upon withdrawing money from the KH. If your investment strategy requires frequent rebalancing, switching funds, or regular trading, it may be worth considering contributions above the tax cap.

However, for most people looking to buy and hold ETFs for the long term, the additional KH management fee, account lockup upon withdrawal, and certain double dividend taxation, make this strategy unattractive.

Keren Hishtalmut for teachers

What is a teacher’s Keren Hishtalmut?

The name finally rings true – a teacher’s KH is truly an education fund. It is designed to be used to fund a sabbatical year and will both pay the teacher’s salary and the tuition costs.

Whereas in a regular KH, the employer contributes 7.5% and the employee 2.5%, the contribution levels for teachers are unique:

Employer	Employee
8.4%	4.2%

A teacher can take a sabbatical year after 6 years, but will receive a higher percentage of their salary during that year if they wait longer:

Years of Savings	Percent of salary to be paid
6 years	66.66%
6 years, 8 months	74.06%
7 years	77.77%
7 years, 8 months	85.18%
8 years	88.88%

The teacher’s latest salary is used as the basis for these salary calculations. This can be an advantage if you contributed to KH from a lower salary and then receive a pay rise before taking a sabbatical year.

These salary payments are largely exempt from income tax.

Can I contribute to a regular Keren Hishtalmut if I am a teacher?

Yes. If you do not plan to take a sabbatical year, you should strongly consider this option. It will allow you to receive 7.5% from the employer and only contribute 2.5% yourself (as opposed to receiving the same 8.4% * 89% = 7.5% and having to contribute 4.2% from your own pocket). Additionally, and most importantly, you can withdraw the money without precondition after 6 years and you can choose your investment track.

Alternatively, if you may want to take a sabbatical year in the future, you can save in a teacher’s KH for your first 6 years, earning the right to take a sabbatical year in the future, and then open a regular KH for your subsequent deposits. Note however, that the future sabbatical year payout will be based on your last salary before you stopped depositing into the teacher’s KH.

Can I take a loan from the fund?

Yes. You will need to contact the KH management company to confirm loan conditions.

Can I change investment tracks?

Other than the default fund, there are very few options regarding investment tracks. The only ones on offer from the Histadrut Hamorim and the Irgun Hamorim are:

Track	Limitations
Bonds track	The bonds track cannot be used for a sabbatical year and is only available for those aged 55 and over.
Kosher/Halachic track

If you are looking to invest in a track with a larger exposure to stocks, you will have to consider a regular KH instead.

Can I withdraw a lump sum?

Yes, if the fund has been opened for 6 years and one of the following conditions is also met:

1. 100% of the fund balance can be withdrawn upon retirement or death
2. 100% of the employee contribution and only 89% of the employer contribution can be withdrawn in the following circumstances:
   • Age 55
   • Age 50 OR 15 years seniority, AND one full sabbatical year taken previously
   • Dismissal from your job
   • Leaving the teaching profession or transfer to certain management positions
   • Disability, significant medical circumstances, or difficult financial circumstances

Note that the 89% factor is coming to account for the difference between the regular employer 7.5% contribution and the special 8.4% contribution for teachers.

Can I transfer my balance to a regular Keren Hishtalmut?

If you meet one of the conditions above for withdrawing the KH funds as a lump sum, you can instead decide to transfer this lump sum (100% of employee contribution and 89% of employer contribution) to a regular KH. This will allow you to continue to receive the tax benefits of a KH, will allow you to withdraw the money whenever you wish in the future, and gives you the freedom to choose a stock market investment track.

Self-managed Keren Hishtalmut

What is a self-managed Keren Hishtalmut?

A self-managed KH operates similarly to a regular KH. The primary difference is that the money is not invested in standard track, but it is transferred to a brokerage account, allowing you to personally invest it as you wish (with certain limitations to reduce risk).

There are currently only 4 providers of self-managed KH:

• Globalnet (minimum 250,000 ₪ across KH & pension)
• Migdal (minimum 750,000 ₪)
• Meitav (minimum 300,000 ₪ across KH & pension)
• Slice (January 2024 update: Slice is being investigating for mishandling customers funds. We continue to not recommend them.)

You have to build up the minimum in an existing KH before being able to transfer to self managed.

The self-managed track is usually cheaper than a regular KH, with management fees with GlobalNet for example starting at 0.35% and reducing as the balance in the fund grows beyond 1M shekels.

Should I open a self-managed Keren Hishtalmut?

Self-managed pension and KH are still very far from mainstream. Pension agents are not motivated to tell you about this option as they do not receive commissions.

Here are the factors you should consider regarding a self-managed KH:

• Minimum. You first must meet the minimum balance.
• Citizenship. This may be the only option for self-employed US citizens.
• Fees. Self-managed is clearly cheaper. Not only is the management fee lower, by switching you also avoid “hidden fees” in a regular KH such as trading fees (דמי ניהול השקעות), cash drag, and inferior dividend taxation.
• Returns. This largely depends on what you invest in. Most people who switch to self-managed believe they can achieve better returns than what is on offer in the standard system.
• Effort & Knowledge. This is the most important factor. Only people with experience managing their own brokerage account should consider self-managed. A self managed fund has to actually be managed by yourself. If you do not log into your brokerage account every month or two and invest the deposits, the money will simply sit there as cash, doing nothing. You also have to be confident that you can build an investment strategy and stay the course in good markets and bad.

Summary

Keren Hishtalmut is a very powerful investment vehicle. Optimizing your KH and using it for long-term investing is one of the best financial decisions you can make.